MINNEAPOLIS — Boosted by a stronger showing by the company’s North America Retail and Pet segments, overall operating profit at General Mills, Inc. rose 10% in the first quarter ended Aug. 25 to $662.4 million.
General Mills net income in the quarter was $520.6 million, equal to 86c per share on the common stock, up 33% from $392.3 million, or 66c per share, in the first quarter of fiscal 2019. Sales were $4,002.5 million, down 2.2% from $4,094 million. Organic sales eased 1%, reflecting lower organic volume, partially offset by positive organic net price realization and mix across all operating segments.
“Our first-quarter net sales performance included encouraging improvement in North America Retail and strong growth in our Pet segment driven by good innovation and effective brand-building investment,” Jeffrey L. Harmening, chief executive officer, said during a Sept. 18 conference call with analysts. “We got off to a slower start in our other segments, and we expect top-line improvement in those segments and for the company starting in the second quarter.
“On the bottom line, we delivered profit and earnings growth ahead of our expectations while continuing to invest in our brands and our capabilities. We remain on track to deliver our fiscal 2020 goals, including accelerating our organic sales growth, maintaining our strong margins and reducing leverage.”
In trading at mid-day on Sept. 18 on the New York Stock Exchange, shares of General Mills were down nearly 3% from the close of $55.03 on Sept. 17.
Operating profit of the North America Retail segment, General Mills’ largest, was $559.9 million, up 2.2% from $548.1 million in the first quarter of fiscal 2019. Sales were $2,376.1 million, down 0.5%.
General Mills said sales in the company’s U.S. Cereal business increased 1% and were flat in U.S. Yogurt, while sales in U.S. Snacks and in the U.S. Meals and Baking businesses each slipped 1% in the quarter.
Looking at Nielsen data, Mr. Harmening said the company’s products held or gained market share in 5 of its 10 largest categories, including cereal, refrigerated dough and soup.
During the call, Mr. Harmening highlighted the cereal business success.
“We grew U.S. Cereal retail sales in fiscal ‘18 and ‘19, and the results accelerated in the first quarter with retail sales up 1%,” he said. “We outpaced the category, expanding our share leadership position through increased investment behind compelling consumer ideas such as our Cheerios heart health campaign and strong in-store execution and events. We also had another impressive quarter on innovation with the top five new products in the category, including Blueberry Cheerios and Cinnamon Toast Crunch Churros.
“I am very pleased by our performance in U.S. Cereal, and I’m excited about the plans we have for the rest of the year to continue our momentum. We’re executing well on the fundamentals of innovation and brand building, and we’ll continue to drive these levers in the rest of the year.”
Segment operating profit was boosted by holistic margin management (HMM) cost savings and benefits from positive net price realization and mix, but input cost inflation and higher brand-building investments were headwinds.
In the company’s U.S. Snacks business, Mr. Harmening said General Mills began fiscal 2020 focused on improving performance behind innovation, renovation, brand-building support and in-store execution.
“In the first quarter, retail sales were down 2%, cutting our fourth-quarter declines in half,” he said. “Retail sales trends for Nature Valley improved each month during Q1 driven by positive results of our wafer bar innovation and a stronger back-to-school merchandising season.
“Retail sales for Fiber One have also improved each month since we reformulated the product line to be more relevant for modern weight managers. While we still have distribution losses from earlier this calendar year, our gross returns per point of distribution have stepped up in recent months. For the remainder of the year, we’ll continue to execute our fiscal ‘20 plans on bars, and we expect to see continued retail sales improvement.”
Mr. Harmening said General Mills had “a great year” on refrigerated dough in fiscal 2019, and that momentum continued into the new fiscal year as first-quarter retail sales increased 2% and market share increased by a full point.
Through the first three months of fiscal 2020, U.S. Yogurt sales dipped 2%, but Mr. Harmening remained upbeat about the potential of the segment.
“We drove retail sales growth on the core with Original Style Yoplait flat to last year and Go-Gurt up 13% due to increased distribution on Go-Gurt Dunkers and Go-Gurt Simply as well as strong back-to-school merchandising,” he said. “The ‘simply better’ segment, which now represents 12% of the category, continues to be an attractive growth space. We drove 8% retail sales growth on our products in this segment behind our better-tasting YQ product reformulation, which now prominently features the protein benefit on the updated packaging. And we launched into a growing beverage segment with our new Yoplait Smoothies. In total, we like the news and innovation we’re bringing to the U.S. Yogurt category this year to drive further improvement in our retail sales trends.”
The company’s Convenience Stores and Foodservice unit had operating profit of $91.1 million, down 6.2% from $97.1 million in the same period a year earlier. Sales were $445 million, down 3.9% from $463.2 million.
After-tax earnings from General Mills’ joint ventures aggregated $22 million, up 22% from $18 million a year ago. Cutting into profits was $5 million representing General Mills’ share of a restructuring of Cereal Partners Worldwide, which was not included in adjusted net income. C.P.W. sales increased 2% in the first quarter (constant currency), reflecting growth in the U.K. and Australia, Latin America, and Asia, Middle East and Africa regions, partially offset by declines in the continental Europe region. Constant-currency net sales for Häagen-Dazs Japan increased 6%.